This brief macro-level diagnostic review is the outcome of a study on macro-level diagnostics refresh which was one integral part of the Ethiopia country wide diagnostic refresh based on mainly secondary data and a qualitative information collected through KIIs and FGDs conducted to enrich the report. This country diagnostic refresh report is prepared at the federal level to facilitate the engagement of MasterCard Foundation in its pursuance of job creation for the young people of which 70% will be women. It highlights the objective of the study, the methodology employed, the key findings and the policy implications.

 1.1. Overview of the project

The macro-level diagnostic refresh report is prepared to refresh the previous country diagnostic analysis undertaken by the Foundation’s staffs and Dalberg. MasterCard Foundation under its Young Africa works strategy set a goal of enabling 30 million young women and men in Africa to find dignified and fulfilling work of which 70% will be women. Young Africa Works – Ethiopia envisions taking a third of the target the Foundation aims at, 10 million young Ethiopians. However, the Covid-19 crisis has triggered the need to adapt and adjust to a new environment marked by new needs, constraints, and opportunities which calls for in-depth understanding of changed country contexts. This requires renewed attention to country realities and refreshes the original diagnostic analysis. The aim of this policy brief is to refresh the previous diagnostic analysis in the Covid-19 environment.

1.2. Objectives of Macro-level Diagnostics

The overarching objective of the macro-level diagnostics refresh is to update MasterCard Foundation’s “Reimagining Work” process with current, relevant data and evidence on country conditions and opportunities regarding macro-level priority sectors and interventions that can promote job creation. Specific objectives, inter alia, include:

  • To understand existing social, economic, and political situation, challenges/barriers and risks that arise due the Covid-19 pandemic and other factors;
  • Conduct a root-cause analysis to understand the existing social, economic, and political situation that a young women and men face in securing dignified and fulfilling job;
  • To update the Foundation’s understanding and tracking of national priorities in a Covid-19 world and identify strategic directions to validate choices or make adjustments; and
  • Establish a baseline snapshot for measures, key trends and assessing our future impact and contributions.


The study employed concurrent quantitative and qualitative research approach to conduct an in-depth study and analysis of root causes of failure to secure dignified and fulfilling job, challenges, barriers and risks that emanate from the Covid-19 pandemic and other factors. The macro level diagnostic analysis focuses on the wider country context and makes use of country level policy documents/ strategies/ programs which were introduced/ changed due to Covid-19 and to update the previous study. The collected data (both primary and secondary) is used to support refinement of country strategic documents. Bulk of the data for the macro-level diagnostic analysis is generated from secondary sources and documents. Additional qualitative data are collected through Key Informant Interviews (KIIs) and Focus Group Discussions (FGDs) to complement/ supplement and triangulate data obtained from secondary sources.


3.1. Ethiopia – Country Profile

The state of structural transformation is slow as in many other Sub-Saharan African countries. Changes in sectorial composition of GDP and sectorial pattern of Employment are indicators used to characterize the state of structural transformation.

The drop in the share of agriculture sector is a sign of structural transformation of the economy in which labor shifts from this sector to other sectors of the economy. Between 2010/11 and 2018/19, while there seems to be a significant change in the share of the agriculture and industry sectors, almost no change is observed in the share of the services sector. The doubling in the share of the industry sector largely came from almost tripling in the share of the construction sector that shot up from 7.1% in 2010/11 to 20.1% in 2018/19. During the same period, the increase in the share of the manufacturing sector was not that significant (increased from 4.7% to 6.8%).


Between 2008 and 2018 Ethiopia’s economic growth averaged 9.8%. This economic growth has slowed down to 7.7% in 2018 in which political unrest and the drop in real interest rate, which reduces savings available for investment, could be one of the possible causes. By 2019 Ethiopia’s economic growth rebound to about 9%. However, IMF’s estimate puts the country’s annual growth rate at 1.9% in 2020 vis-à-vis a 9% growth rate registered in 2019.


While the share of employment in agriculture sector dropped to 66.2% in 2018 from 73.9% in 2010, average annual inflation rate rose from 13.8% in 2018 to 18% in December 2020. Expansionary fiscal policy, which appears to have crowded out the private sector’s access to finance, might have contributed to inflation. On the other hand, anti-competitive and hoarding practices have made it difficult to stabilize prices.


Overall, Ethiopia needs to almost triple its per capita GDP and cut poverty nearly by half to achieve today’s lower middle-income level.


On the other hand, Ethiopia’s population is projected to reach 140 million by 2030 and 190 million by 2050. The size of economically inactive population in urban areas is about 6.9 million, of which close to 66% were in school (UEUS, 2020). In addition to being at school, making at home, old age and illness contributed, respectively, about 13%, 7% and 4% to economic inactivity in urban Ethiopia. This indicates that in urban Ethiopia about 2.4 million persons were neither engaged in work nor training – an indicator of the extent of social exclusion.


Urban unemployment rate for major towns slightly rose from 26.9% in 2018 to 27.9% in 2020. Ethiopia’s urban underemployment[1]  rate rose from 42.6% in 2018 to 49.3% in 2020. Derived estimate of working poverty[2] rate was found to be about 17% and needs to be interpreted with caution.


There is a substantial gender disparity in urban employment (26% in 2018 vis-à-vis 28% in 2020 for the young people in the age group of 25-29 years). While disparity in educational attainment and skills training could be possible factors driving the persistence of gender inequalities in employment, traditional attitudes, beliefs and practices are also some of the derivers for females to lag behind their male counterparts in labor force participation. Thus, providing tailored training and empowering women could help extenuate the existing gender disparity in employment.


Inadequate skill levels, mismatch between educational training and employers’ needs, disparities in unemployment rate between women and men, and rural-urban migration (>53% of unemployed in urban areas are rural-urban migrants) are some of employment challenges Ethiopia faces.


3.2. Informal Sector Employment

The informal economy is estimated at about 38.6% of GDP vis-à-vis 38.4% for SSA and 38% for all low-income countries. On the other hand, the informal sector employment dropped from 21.7% in 2018 to 16.1% in 2020. This could be seen as a sign of structural transformation where employment shifts from the informal sector to formal sector of the economy.


It is also found that individuals’ attitude, lack of entrepreneurial skills and lack of start-up capital are some of the factors that make self-employment less attractive for individuals with secondary and tertiary level of education.


3.3. Possible ways to mitigate unemployment

The following issues are some of the points that need the attention of policy makers in their endeavor to extenuate unemployment problems the country is facing. These are:

  • Providing soft skills training like customer services, negotiation skills, improvement in communication skills, etc.;
  • Promoting more demand based skill training (based on employers’ need) and thereby reducing the skills mismatch;
  • Organizing more forums for Public-Private dialogue, involving the government, private sector, NGOs and other stakeholders on sustainable youth employment opportunities; and
  • Facilitating information exchange, through trade fairs, and promoting partnerships; and
  • Putting in place fair and competitive atmosphere for the private sector.

 3.4. Barriers and challenges to development of entrepreneurship

Barriers to entrepreneurship for young people include:

  • Gender-based discriminatory barriers for women entrepreneurs in provision of innovative financial services and products;
  • Entry and operational barriers;
  • Poor digital business environment;
  • Lack of digital skills;
  • Shortage of finance and foreign exchange;
  • Restrictive import and customs processes; and
  • Shortage of technical skills.

Some of the challenges to entrepreneurship development are:

  • Eligibility criterion for uptake;
  • Perceived corruption and nepotism;
  • Lack of information;
  • Access to and awareness of government schemes;
  • Lack of the capital necessary to start and maintain business;
  • Lack of knowledge of the potential of MSEs;
  • Preference for paid employment;
  • Limited capacity of savings mobilization;
  • Very low entrepreneurial attitudes; an
  • Shortage of working premises.

Possible ways forward, inter alia, include:

  • Youth needs and interests are better mainstreamed;
  • Enhance more coordinated partnership;
  • Learning from other countries experience, identifying “Excellence Centers” where tailored training of trainers (ToTs) will be conducted; and providing flexible financial services.

3.5. Changes in Macro-economy due to Covid-19

Covid-19 outbreak exacerbated the level of unemployment. World Bank’s survey (2020) indicates that the pandemic resulted in significantly higher proportion of job loss, especially among the young and less experienced. Results of this survey indicate that about 8% of respondents lost their jobs at the beginning of the outbreak. Job losses were higher in urban (20%) than in the rural areas (3%) and higher for women (13%) than for men (6%). Self-employed or those working as casual laborers in urban areas were the most affected ones. It is also found that women experienced disproportionate drops in employment rates; for example, despite making up only 42% of the workforce, 57% of laid off workers in June 2020 were women.


Major constraints posed by COVID-19 include:

  • closure of firms (about 42% of the sampled firms) either temporarily or permanently;
  • reduction in output and consumption;
  • supply and production disruptions;
  • knock-on effects on small businesses/ enterprises and self as well as wage employment;
  • loss of export orders;
  • reduction in remittances; and
  • Worsening external debt burden.

Key macroeconomic measures taken since March 2020, inter alia, include:

  • NBE set aside 15 billion Birr liquidity facility for private banks to support their clients, especially businesses adversely affected by Covid-19 (IMF, 2020);
  • Birr 5 billion package announced by Prime Minister to bolster healthcare spending;
  • announcement of a Covid-19 Multi-Sectorial Preparedness and Response Plan, with prospective interventions costing US$1.64 billion;
  • New laws and directives facilitating ease of payment and money transfer.
  • Credit to MSMEs via a quick-disbursing special window at DBE;
  • The Urban PSNP is expanded to 16 additional cities in collaboration with the WB, with an estimated cost of $88 million (IMF, 2020) which covers 500,000 new beneficiaries.

Measures taken to alleviate potential negative impacts of COVID-19, inter alia, include:

  • prohibiting retrenchment of public sector employees; and
  • Declared private businesses not to dismiss their workers during this partial lock-down.

NBE, in its June 2020 Circular:

  • availed short term financing facility through DBE for the microfinance sector;
  • temporarily relaxed some of the regulatory requirements to enable MFIs to help their borrowers in managing their debt (restructuring or rescheduling of loans and advances for sectors hardly hit);
  • introducing flexible loan provisioning; and
  • Relaxation on the maximum loan size for a borrower.



 4.1. The need to control inflation

Inflation could potentially divert resource allocation from productive sectors and necessitates a need to control it. Expansionary fiscal monetary policies are believed to have contributed to inflation. On the other hand, anti-competitive and hoarding practices have made it difficult to stabilize prices. Reducing the country’s dependency on imports may also contribute to the act of inflation control.


4.2. Gender disparity in employment and labor force participation

There is a substantial gender disparity both in labor force participation and employment which needs policy actions. Reduction of gender disparity:

  • necessitates for adoption of policies and strategies that narrow the prevailing gender disparity; and
  • Mainstreaming gender issues in employment and empowering women are policies that may help to narrow the prevailing gender disparity.

4.3. Employment Creation

Ethiopia’s new job seekers are projected to grow by more than 2 million per year. This new working-age population entering the labor market will definitely pose a series challenge that necessitates strong partnership and synergy with NGOs, bilateral, multilateral and private sector institutions. Promoting job rich MSE and entrepreneurship development could also help create substantial new jobs for the young people provided that they are well equipped with relevant training and skills. However, awareness creation precedes offering training and skills.


4.4. Mitigation of the mismatch between skills gained and employment opportunities

The mismatch between skills gained at the training institutions and employment opportunities continue to be a serious challenge, and a waste of resources. To enable trainees to acquire the right skill that will help them to get wage employment or start their own businesses, the contents of such training programs need to be based on detailed assessment of the market needs (especially at potential employers, and potential self-employment fields).


Creating a mutual understanding and coordination among actors (government, private sector, NGOs) appears to be very important. Creating a mutual understanding among actors might facilitate promotion of better collaboration. Providing direct financial and logistic support to the most vulnerable young women working in the informal sector may also contribute to employment creation.


[1] Underemployment is defined as the proportion of workers who are “available and ready to work more hours

[2] Working poverty rate is the proportion of working poor in total employment